Will California's Health Insurance Exchange have the power?

Maryalene LaPonsie |
August 10, 2010

By: Maryalene LaPonsie

"With great power comes great responsibility."

Uncle Ben might have been talking to Peter Parker in Spiderman when he uttered those words, but the same could be said about the latest health care debate in California. Two bills are currently winding their way through the California Legislature and will create the state's health insurance exchange. While legislators have penned in provisions to allow the exchange to bargain for affordable health insurance rates, insurers aren't so sure that's a great idea.

Health Insurance Exchanges 101

In case it has slipped your mind, health insurance exchanges are one of the highlights of the federal health reform bill that passed earlier this spring. They are a central part of the Obama administration's initiative to provide insurance to all Americans. Unlike previous attempts to reform health insurance, the new federal plan hinges on one simple mandate: every man, woman and child must carry health insurance by 2014.

To do that, all employers with more than 50 workers must offer health insurance as an employment benefit. While the government's grand plan is that many citizens will get group insurance through their jobs, the reality is that approximately 11 million of today's uninsured work at businesses that employ fewer than 25 workers. These folks will not benefit from the employer mandate.

Instead, those workers will be required to buy health plans through a health insurance exchange. Each state will maintain its own exchange which is expected to act as a clearinghouse for families to compare health insurance rates and pick the best policy. In addition, to help cover the cost of mandated medical insurance, the federal government will provide subsidies to those earning up to 400 percent of the federal poverty limit.

California's conundrum

With that in mind, we return to California where the state is already making plans for its health insurance exchange. Although not required until 2014, California has picked up the mantle of health reform and is quickly outpacing other states when it comes to implementing its policies.

The current bills being discussed would not only create a health insurance exchange but also give that entity the power to negotiate health insurance rates. It's at this point that California insurers have voiced their objection. From mega-player Anthem Blue Cross to associations representing smaller health insurance companies, critics are arguing that a powerful health insurance exchange could lead to a political process in which the exchange picks winners and losers instead of the free market.

Insurance companies state that the health insurance exchange should be neutral territory where individuals and families can shop for the cheapest health insurance without government interference. However, consumer advocacy group Health Access counters that a powerful exchange is necessary to ensure that policyholders don't face excessive premium hikes.

How California seeks to solve the conundrum of creating low cost health insurance remains to be seen. However, lawmakers might do well to channel the wisdom of Uncle Ben and consider whether a health insurance exchange would act responsibly with its newly appointed power.